Ioana Kruse3, Menno Pradhan2, Robert Sparrow1 1International Institute of Social Studies, Erasmus University Rotterdam, The Netherlands, 2VU University Amsterdam, The Netherlands, 3Johns Hopkins University Bloomberg School of Public Health, USA

We examine the marginal effects of decentralized public health spending by incorporating estimates of behavioural responses to changes in public health spending through benefit incidence analysis. The analysis is based on a panel dataset of 207 Indonesian districts over a 4-year period from 2001 to 2004. We show that district-level public health spending is largely driven by central government transfers, with an elasticity of public health spending with respect to district revenues of around 0.9. We find a positive effect of public health spending on utilization of outpatient care in the public sector for the poorest two quartiles. We find no evidence that public expenditures crowd out utilization of private services or household health spending. Our analysis suggests that increased public health spending improves targeting to the poor, as behavioural changes in public health care utilization are pro-poor. Nonetheless, most of the benefits of the additional spending accrued to existing users of services, as initial utilization shares outweigh the behavioural responses.